Completed Application
105 South Fifth Avenue
Suite 513
Minneapolis, MN 55401
Tel: 612-252-9070
Fax: 612-252-9077
www.landform.net
Landform®, SensiblyGreen® and Site to Finish® are registered service marks of Landform Professional Services, LLC.
VIA E-MAIL
August 15, 2017
Adam Flaherty, CPA
City Administrator & Finance Director
City of Otsego
13400 90th Street NE
Otsego, MN 55330
RE: Application for Tax Increment Financing (TIF)
Otsego Apartments, LLC/ Riverbend North
Dear Adam:
On behalf of Otsego Apartments, LLC we are pleased to submit the attached application for TIF
assistance for the Riverbend North project. We look forward to discussing it with the Otsego City
Council at the August 28th meeting.
The application proposes two possible alternatives for a TIF district: a Redevelopment District or a
Housing District. The primary purpose of the public financing is to assist with the elimination of the
private waste water treatment facility (WWTF) and the connection of new and existing development
to the municipal sewer system, to maintain affordable housing in the Riverbend Mobile Home park,
and potentially create additional affordable units.
This project is feasible without tax increment financing, but only if the new Riverbend North
development utilizes the existing WWTF. The cost to connect to the municipal system and the desire
to eliminate the WWTF entirely makes the project infeasible without assistance.
In addition to the City’s application form, the attached materials include a revised Concept Plan
Exhibit, Project Pro-Forma, Legal Description of the site, and a letter from the County Assessor. The
required $5,000 application fee will be delivered separately.
Please contact me at 612-638-0250 or by email at DLazan@landform.net if there are any questions
about these materials.
Sincerely,
Landform
Darren B. Lazan, RLA, President
COPY: Casey Darkenwald
ENCL:
Page 1 of 7
ATTACHMENT A: FORM
REQUEST FOR FINANCIAL ASSISTANCE FORM
CITY OF OTSEGO
AND
OTSEGO ECONOMIC DEVELOPMENT AUTHORITY
REQUEST FOR FINANCIAL ASSISTANCE
TAX INCREMENT FINANCING (TIF)
OR
TAX ABATEMENT
FORM
FOR
Otsego Apartments, LLC
Riverbend North
NAME OF APPLICANT
Page 2 of 7
CITY OF OTSEGO
REQUEST FOR FINANCIAL ASSISTANCE FORM
REQUIRED INFORMATION
1. Provide a brief project description
Background—In 2014, the City of Otsego approved a PUD concept plan for the Riverbend
North property. The plan showed apartments and storage uses, and two commercial sites.
In May of 2017, Darkenwald Corporation submitted an application to amend the Riverbend
North PUD. The new concept plan includes apartments (192 units) mini-storage (21,400 sq.
ft.) a site for a future retail building (5,000 sq. ft.) all located on a private drive extended
from River Road. The plan assumes sewer service from the existing Riverbend Wastewater
Treatment Facility (WWTF), which also serves the Riverbend Mobile Home Park located
directly to the south of the site. Engineering studies have shown that the WWTP has
sufficient capacity and can continue to serve the both the new development and the mobile
home park for many years in the future with maintenance and reasonable improvements.
The revised PUD application is currently in process with Otsego’s Planning Commission,
which has tabled the application to its September 18th, 2017 meeting. The primary issue
with the concept plan is the continued use of the Riverbend WWTF for the new development
and for the mobile home park. City staff has stated their opposition to any project that does
not connect to the city’s wastewater treatment system. Even if the new development
connects to the city system, there are objections to the concept plan which must
accommodate the continuation of the WWTP for the use of the mobile home park, and to
the amount of commercial uses proposed for the site.
Revised Concept Plan—In response to the discussions with staff, a revised concept plan
(attached) has been prepared. The revised plan shows 164 apartment units, mini-storage
(23,652 sq. ft.) and two sites for commercial buildings totaling 15,000 sq. ft. The apartment
building would be the first phase of development.
The project pro-forma covers the apartments only, as the timing of construction of the
commercial uses is not known and they are considered more speculative. It shows that this
project is feasible without any assistance from the City, but only if it uses the private
WWTP. The cost of connecting to the city’s system would be (for the apartments alone)
$1,567,433. This does not include city connection and access fees of $1,219,712 (128
RECs) for the Riverbend Mobile Home Park and the cost of decommissioning the WWTP
(estimated at $150,000.)
TIF Request—TIF assistance is requested to cover the cost of connecting Riverbend North
to the city sewer system. Two options for TIF should be considered: a Housing District
(which would require 20% of apartment units to meet affordability requirements) or a
Redevelopment District (which would require a finding of blight, which may be met by the
presence of the WWTP and some older storage buildings on the site.)
The “gap” to be filled by TIF assistance for a Housing District would be approximately
$3,498,135. The “gap” for a Redevelopment District would be $1,772,967; less, because the
Housing District would require a reduction in rents to meet the affordability requirement.
Neither scenario provides sufficient revenue to pay the sewer connection and access fees for
the Riverbend Mobile Home Park. We request that the city consider initially waiving those
fees in order to add the park as a customer to the municipal system and to preserve the
affordable housing it provides. When the commercial components of the project are
developed, they would generate additional tax increment that could be used to recover
these costs.
Page 3 of 7
2. Provide business information
Business Name: Otsego Apartments, LLC
Address: 7355 River Road NE
Otsego, MN 5330
Telephone: 763.441.3700
Contact Name: Casey Darkenwald
3. Provide brief description of the business
Rental apartments; future commercial and mini-storage
4. Provide information on the present ownership of the site
Name: Darkenwald’s Riverbend Wastewater Facility Company LLP
Address: 7355 River Road NE
Otsego, MN 5330
Phone Number: 763.441.3700
Contact Name: Casey Darkenwald
5. Provide information on the proposed project (apartments only)
Building square footage: 54,000 sq. ft.
Size of property: 7.4 acres of 13.1-acre site
Description of building: 4-story apartment building, 164 units averaging 960 sq.
Materials and other additional relevant building information: 442 parking stalls (2.5
per unit), 347 surface stalls and 95 garage or tuck-under stalls
6. Provide total estimated project costs
Land Acquisition $ 2,100,000
Construction $ 17,923,780
Financing Costs $ 430,920
Professional Fees $ 1,077,300
Total $_ 21,546,000
7. Project Costs: List and describe in detail by item the amount and purpose for which
financing (either tax increment financing or tax abatement financing) is being requested
See attached Pro-Forma. The primary purpose of the public financing is to assist with
the elimination of the private WWTF and the connection of new and existing
development to the municipal sewer system, to maintain affordable housing in the
Riverbend Mobile Home park, and potentially create additional affordable units through a
Housing TIF district.
8. State specific reasons why the use of tax increment financing or tax abatement
assistance is necessary for the project (the “but for” test)
The project is feasible without tax increment financing, but only if the new Riverbend
North development utilizes the existing WWTF. The cost to connect to the municipal
system and the desire to eliminate the WWTF entirely makes the project infeasible
without assistance.
Page 4 of 7
9. Provide market value information
Current market value (from Wright County
Assessor):
$342,200
Proposed market value at completion: $18,047,865 (Housing District) or
$19,923,033 (Redevelopment District)
10. Provide real estate property tax information
Existing real estate taxes of property: $5,544
Estimated real estate taxes of property
upon completion:
From Pro-Forma:
$225,598 (Housing District) or
$249,038 (Redevelopment District)
Per County Assessor (8/15/17):
$233,700
11. Provide source of financing information
Housing TIF
District
Redevelopment
TIF District
Equity $4,309,300 $4,309,300
Bank Loan $14,088,378 $15,641,029
Tax Increment Financing $3,148,322 $1,595,671
Total $21,546,000 $21,546,000
12. Provide name and address of architect, engineer, and general contractor for the
project
Architect:
Graeme Mahler, AIA
Principal
Mahler and Associates Architecture
325 33rd Ave N #107
St Cloud, MN 56303
Tel: 320.257.2724
Fax: 320.257.2725
gmahler@mahlerarchitecture.com
Planners & Engineers:
Darren Lazan, RLA, President
Landform Professional Services
105 South Fifth Avenue, Suite 513
Minneapolis, MN 55401
612.638.0250
DLazan@landform.net
Multi-Family Development Consultant:
Jim Illies, CPM, Principal
INH Properties
175 7th Ave South
Waite Park, MN 56387
320.252.2000
jimjr@inhproperties.com
Page 5 of 7
13. Provide project construction schedule
Estimated construction start date: Spring, 2018
Estimated construction completion date:
If phased project: _____2018_____ Year ____75___ % Complete
_____2019_____ Year ____100__ % Complete
14. Describe how the project will meet one or more of the following City of Otsego
or Otsego Economic Development Authority goals (in addition to increasing tax
base).
Please provide measurable, specific, and tangible goals. Goals may include the
following: increased wages; creation of jobs that pay wages adequate to support
households; and/or job retention where job loss is specific and demonstrable; and/or
development or redevelopment projects that are consistent with the City of Otsego’s
goals and objectives.
• The development will provide quality, market-rate and affordable multi-family rental
housing for employees of Otsego businesses.
• The development will help to create demand for goods and services from the new
residents, and support the city’s goals for retail development.
• Removal of the Riverbend Wastewater Treatment Plant will:
o Benefit the City of Otsego’s wastewater treatment operations by contributing
connection and access fees from the new development, and adding new
customers to the system from the new development and the Riverbend Mobile
Home Park.
o Eliminate the need to rehabilitate and further invest in maintenance of the
private WWTF.
o Eliminate the City’s concern that it could become responsible for the operation
and maintenance of a private WWTF.
o Eliminate the City’s concerns about possible any nuisances (odor or noise)
from the private WWTF.
• City assistance will make it financially feasible to extend public sewer service to the
Riverbend Mobile Home Park, helping to preserve approximately 200 units of
affordable housing in the community.
• Future phases of the development will create two commercial sites for future
economic development.
• Future phases of the development will replace existing storage uses with a secure,
attractive mini-storage facility in a location convenient to the surrounding residential
area.
• Development of the project will provide short-term construction-related jobs.
15. Provide a reference from another municipality (if applicable) Development team
has most recently worked with the City of Alexandria and City of Cambridge
Page 6 of 7
16. Provides names of any other municipalities wherein the applicant, or other
corporations the applicant has been involved with, has completed
developments within the last five years
Stan Gustafson, Economic Development Director
City of Cambridge
300 Third Avenue NE
Cambridge, MN 55008
Direct 763.552.3209
sgustafson@ci.cambridge.mn.us
Jason Murray, Executive Director
Alexandria Area Economic Development Commission
610 Fillmore Street, Suite 1
Alexandria, MN 57308
Direct 320.763.4545
jmurray@rea-alp.com
17. Provide the following required supplemental information:
- Project Pro Formas (one showing with assistance and one without assistance)
- Legal description of the property
- Application fee of $5,000 payable to the City of Otsego
- Site plan
SUBJECTIVE ANALYSIS
In addition to the required information from above (items 1-19), the following information is
requested and will be considered as part of the application approval process:
18. Provide number of years in business 48
19. Provide number of years located in the City of Otsego (if applicable) 40 + years
20. Describe potential for business growth or future development
The apartments will help to provide a market for the future phases (retail/commercial
and mini-storage) of this project.
21. Explain whether the building will be owner-occupied (Yes/No) No
22. If rental space, provide the targeted retail rates
Monthly
Rent
Number
of Units
Apartment Rents, Market Rate 1 Bedroom $ 1,102 82
1 Bedroom/Den $ 1,173 25
2 Bedroom $ 1,383 41
3 Bedroom $ 1,603 23
164
Apartment Rents, Affordable (20% of
units, Housing District)
1 Bedroom $ 801 11
1 Bedroom/Den
2 Bedroom $ 960 11
3 Bedroom $1,110 11
33
Page 7 of 7
23. If building is non-owner occupied, explain whether the lessee will be required
to capitalize this lease
Apartments will have annual leases.
24. Provide land costs per acre or square foot
$2,100,000 / 7.40 acres = $283,784 per acre
25. Describe the location of proposed facility within Otsego
Southeast corner of Highway 101 and County Road 42 (River Road)
26. Describe the general quality of the development
Development will meet or exceed city standards. Detailed plans of exterior materials are
not yet available, but will be masonry block or concrete base with a type of horizontal
lap siding above. Materials will comply with Section 20-17-4.A.3 of the Zoning
Ordinance.
27. Provide the size of parcel being developed
7.40 acres Phase 1 apartments, 13.1 acres total site area
28. Provide the projected building cost per square foot
Apartment average cost per unit = $130,986
29. Additional comments
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Summary Pro-Forma
Application for TIF
Avg Square Foot per Apt. 958
Description $/month $/unit % of GI Annual $ $/SF - Rent 1.30$ Apartments $/SF - Rent
# of Units 164 Preserve at Commerce 1.17$
Gross Income # of TU Garage Units 47 Skye at Arbor Lakes 1.41$
Apartment Rents 1,246 14,954 96.1%2,459,835 $/garage stall/month 65.00$ Granite Shores 1.53$
TU Garages 65 780 1.4%36,660 # of Garage Units 48 Residence at the COR 1.44$
Garages 48 576 1.5%37,440 $/garage stall/month 45.00$ The Birchwood 1.39$
Miscellaneous Income 12.50 150 1.0%24,674 Misc. Income/Unit 150.00$ Evans Meadows 1.28$
Total Gross Income 1,296 15,555 98.5%2,558,609 Vacany Rate 7.00%Arbor Glen 1.18$
(Vacancy and Credit Loss) 90.74 1,089 7.00%179,103
Affordable 140,638 Average Cost Per Unit 130,986$
Effective Income 1,205 14,466 92%2,238,868 Total Cost 21,546,000$ Average 1.34$
Less: Operating Expenses - Loans 17,236,800$
Utilities 80 964 6.2%158,634 LTC 80.00%
Salaries and Wages 88 1,058 6.8%173,985 Equity Required 4,309,200$
Administrative/Advertising 18 218 1.4%35,821
Maintenance and Repair 38 451 2.9%74,200 Loan Amount 17,236,800$
Grounds Maintenance 10 124 0.8%20,469 INT 4.75%
Property Tax 124 1,493 9.6%245,626 AMORT 30 Rent Adjustment 95%
Insurance 17 202 1.3%33,262
Replacement Reserves 23 280 1.8%46,055 Recommended Unit Mix
Management Fee 49 591 3.8%97,227 Unit Type Monthly Rent Square Feet # of Apartment $/SF - Rent
Total Operating Expenses 448 5,382 34.6%885,279 1 Bedroom 1,102$ 800 82 1.38$
1 Bedroom/Den 1,173$ 950 25 1.24$
Net Operating Income 757 9,084 56.9%1,353,590 2 Bedroom 1,383$ 1120 41 1.24$
NOI with TIF 1,474,679$ 3 Bedroom 1,603$ 1350 16 1.19$
Less: Debt Service 164
Loan 547 6,560 42.2%1,078,984 Avg. $/SF - Rent 1.30
Total Debt Service 547 6,560 42.2%1,078,984 Avg. SF/Apt 958
Net Operating Cash Flow 210 2,524 14.8%274,606
GSF/Unit 1,149
Total GSF Unit 189,000
Parking 27,000
Without TIF - WWTP Option With TIF - Housing District Total Building 216,000
Revenue 2,379,506 Return on Cost Required 7.50%
Expenses 832,929 Max Development Cost 18,047,865 Floors GSF Floor Plates Park/Amenity GSF Residential / GSF / Unit
NOI 1,546,577 GAP Identified (TIF)3,498,135$ 4 54,000 54,000 47
Capitalization Rate 7.18%Net TIF to City 349,814$ 3 54,000 54,000 47
Gross Income Multiplier 8.42 Net TIF Developer 3,148,322$ 2 54,000 54,000 47
Cash on Cash 6.37%TIF Note 26 121,089$ 1 54,000 27,000 27,000 23
Debt Coverage Ratio 1.255 DSCR 1.37 216,000 27,000 189,000 164
Max Development Cost 21,546,000 Net Cash Flow w/ TIF 395,695
GAP Funding Needed - Cash on Cash 9.18%
Estimated Tax 225,598
Market Cap 6.50%Annual Tax Amt to City 104,509
Market Value 20,824,459
801.34$ 11.0 1.00$ 0.38$ 39,630.93$
TIF Allocation
City Fees 9,632 1,584,376 960.99$ 11.0 0.86$ 0.38$ 47,671.75$
TIF OPTIONS Project Costs 1,913,759$ 1,110.34$ 11.0 0.82 0.37$ 53,334.90$
32.90 140,637.58$
Denotes Baseline analysis with no assistance
With TIF - Redevelopment District
Return on Cost Required 7.50%Development Budget
affordability component Max Development Cost 19,923,033 Land 2,100,000 9.75%9.72$ 12,767
GAP Identified (TIF)1,772,967$ Professional Fees 1,077,300$ 5.00%4.99$ 6,549
Net TIF to City 177,297$ Finance Costs 430,920$ 2.00%2.00$ 2,620
no affordability component Net TIF Developer 1,595,671$ Construction 17,937,780 83.25%83.05$ 109,050
TIF Note 26 61,372$ Total 21,546,000 100.00%99.75$ 130,986
DSCR 1.37
Net Cash Flow w/ TIF 395,695 WWTP
Cash on Cash 9.18%Plant decommission and demolition 150,000$
Estimated Tax 249,038
Annual Tax Amt to City 187,666 Utility Connection Fees
$/REC REC
Connection Fee 7,147$ 164 1,175,616$
TIF Allocation Access Fee 2,382$ 164 391,817$
City Fees 9,632 960,792 9,529$ 1,567,433$
Project Costs 812,175$
Prepared 8/15/17
River Bend North
Darkenwald Corporation
Otsego, Minnesota
Denotes Redevelopment District option with
Affordable Rents
PROJECT SUMMARY
Competitive Apartments in the Area
Denotes option for housing district with 20%
Legal Description
CIC Number 143
Riverbend North CIC Plat
Attachment to Application for Financial
Assistance
Riverbend North DAC16001 1 August 15, 2017